Resources Connection, Inc. — Form 10-Q Summary
Business context and reporting period
Resources Connection, Inc. (operating primarily as Resources Global Professionals) provides multinational consulting and business-support services. The filing covers the 13-week third quarter and nine months ended February 27, 2016, compared with the periods ended February 28, 2015. Although the request metadata says 2015 Q3, the filing reports fiscal 2016 Q3.
Financial performance and liquidity
| Metric | Three months ended Feb. 27, 2016 | Nine months ended Feb. 27, 2016 |
|---|---|---|
| Revenue | $146.8 million | $446.0 million |
| Gross margin | $54.9 million; 37.4% of revenue | $171.3 million; 38.4% of revenue |
| Operating income | $10.7 million; 7.3% of revenue | $38.1 million; 8.5% of revenue |
| Net income / diluted EPS | $6.0 million / $0.16 | $21.8 million / $0.58 |
| Adjusted EBITDA / margin | $13.1 million / 8.9% | $45.8 million / 10.3% |
| Operating cash flow | Not provided for quarter | $7.0 million |
At February 27, 2016, cash and cash equivalents were $71.5 million and short-term investments were $25.0 million. The company reported no borrowings; its $3.0 million unsecured revolving facility had approximately $1.9 million available after letters of credit, and the company was compliant with its covenants. Total liabilities were $63.6 million and stockholders’ equity was $343.2 million. The current ratio was approximately 3.8. Cash, cash equivalents and short-term investments totaled $96.5 million, down from $112.2 million at May 30, 2015.
Changes versus comparable periods
- Quarterly revenue was essentially flat year over year, down $0.1 million; net income declined slightly from $6.0 million. North American revenue fell 0.8%, while Europe and Asia Pacific grew 1.9% and 6.8%, respectively, as reported.
- For nine months, revenue increased 1.0% and net income rose from $19.4 million to $21.8 million. Diluted EPS increased from $0.51 to $0.58.
- Foreign exchange weighed on reported international revenue: at prior-year exchange rates, international revenue would have been $1.6 million higher for the quarter and $8.8 million higher for the nine months.
- Operating cash flow improved to $7.0 million from $2.8 million, but cash generation remained below net income, in part reflecting working-capital movements, including a $12.0 million decline in accrued salaries and related obligations.
- Quarterly adjusted EBITDA margin edged up to 8.9% from 8.8%; the nine-month margin rose to 10.3% from 9.9%.
Outlook, commentary, risks and unusual items
- Management said existing cash and expected operating cash flows should meet working-capital and capital-expenditure needs for at least the next 12 months. No numerical revenue or earnings guidance was provided.
- Management attributed year-over-year softness in North America partly to lower activity among certain energy and financial-services clients. Energy-market stabilization timing was uncertain. Sequential revenue fell 2.7%, which management primarily linked to holiday timing; billable hours declined 3.9% sequentially.
- The business has no long-term client contracts, and clients may end engagements at any time. Key risks include economic weakness, demand and utilization, competition for clients and consultants, foreign-exchange movements, client credit losses, and fluctuations in quarterly results. The company does not use foreign-currency hedges.
- The company repurchased 1.278 million shares for $20.0 million during the nine months and paid $10.4 million in dividends. A new $150 million authorization began in February 2016; $146.7 million remained available at quarter-end.
- Approximately $0.9 million of nine-month stock-based compensation reflected accelerated vesting related to Donald Murray’s transition from Executive Chairman to Chairman. All remaining amortizable intangible assets were fully amortized by quarter-end.
- Management assessed disclosure controls as effective and reported no material change in internal control over financial reporting during the quarter. Ordinary-course legal matters were not expected to have a material adverse effect. The company expected the new lease accounting standard to significantly affect reported balance-sheet assets and liabilities.
Important facts for investors to verify
- Whether consulting demand, billable hours and client activity—particularly in energy and financial services—improved after quarter-end.
- How much of reported international performance reflects currency translation versus underlying demand, and the effect of continued dollar strength.
- Whether receivable collections and accrued compensation movements support sustained operating cash flow.
- The company’s use of the remaining repurchase authorization and its capacity to maintain dividends alongside investment needs.
- The filing’s caveat that adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures and should be considered alongside GAAP results and cash flows.